Craig, You are much more clever than me!
Maybe I was just caught so off-guard by the whole thing I wasn't thinking clearly. It seems to be just as you surmised, and eReader is most likely fine and dandy. If all turns out as expected, they have me back as a happy (but red-faced) customer.
I received a response quickly to my email with concerns about the privacy issue, from no less than the Director of Operations. Surely he has little free time to be dealing with individual customers, so that's pretty outstanding of him to care that much about my concerns. That's one thumbs up already for eReader.com based on care of customers. Second thumbs up I'll confirm tomorrow, but there seems to be no privacy issue despite my great fears. I will be discussing the matter with him tomorrow over the phone, and he has already indicated that they use some kind of hash algorithm, and that the hash value is all that gets stored with the ebook. I do have a few more questions, but it looks very good, and most likely I'm going to have to humble myself and post a retraction of all the bad thoughts I shared about eReader!
Despite the ugliness of DRM in general, I have to count myself a fan of any company that sells and supports ebooks in a fair and positive manner. And I agree that it seems to be a good compromise in terms of usability vs DRM control.